Electricity Shortage (July 24, 2009)

Wherever you go in South Asia woes of electricity are common. But in Pakistan the situation is worse. New phraseology like ‘power riots’ and ‘electricity protests’ is now claiming front pages of every newspaper and the televisions are getting ‘good footage’ in their parlance.

Recent rains have washed down the electricity distribution system across the country leaving no distinction between the privatised KESC and government-owned WAPDA subsidiaries. But then why blame the electricity distribution companies alone for having a poor network, in this country we also specialize in making soluble roads, which dissolve in rain faster than soluble Disprin.

Before the rains started we were suffering because of the wide gap between demand and supply of electricity in the country. The government has been telling us that this gap would be bridged by the end of this year. They blame the Musharraf regime for not adding ‘a single megawatt during their seven years.’ This blame is only half the truth. Most of the projects which the present government says will come on line by December this year were actually initiated way back in 2005 and 2006. It is also not correct that the Musharraf and Shaukat Aziz government was not aware of the impending power shortage crisis.

So what went wrong? Why do we have serious power generation and distribution problems now? In late 2004 I was asked by the then PPIB Chairman Zafar Ali Khan that what should be done to attract investment in the power sector as the way demand is growing the country would have shortages in a couple of years. I suggested that we should hold power sector road shows to attract investment in this sector. We both agreed that the need is to go out and market Pakistan as a suitable investment destination instead of waiting for the investors to approach the government. For this we needed funds which were raised by me through private sector sponsors, so that no government money is involved and the conferences remain independent. Two conferences were organised by The Mediators Conferences in Dubai and London in February 2005, which were very well attended and inaugurated by the Ministers of the respective countries.

PPIB Managing Director Zafar Ali Khan pitched for investment in Pakistan’s power sector by telling the investors that the country would need additional 5500 MW by 2010. The message was simple that there is always an investment opportunity in the market where there is a gap between demand and supply. Even the Medium Term Development Framework 2005-10 prepared by the Planning Commission in May 2005 says that the shortage would be around 7000 MW by 2010. Pakistan and donor agencies documents of 2005 had stated that the power demand is growing 8 to 9% per annum and did forecast a yawning gap.  So this proves that the government was conscious of the forthcoming power shortage situation.

This brings us to another question what went wrong? According to the feedback I got from the prospective investors, who participated in the conferences and some government officials, red-tapism blocked the progress. Approval of projects and tariff rates by NEPRA for the new projects were delayed by months. Some investors lost heart and walked away to greener pastures. For instance American energy giant AES was keen to invest about a billion dollars in the Thar Coal Electricity Project. But they were shunned away by the bureaucracy, just like the Chinese who kept on haggling on the tariff rates.

In the recent meeting with President Zardari, IPP representatives again complained about delay in NEPRA decisions. Why NEPRA and the relevant bureaucracy are slow and reluctant in approving the power generation projects? To this a senior civil servant confided a few years back: “you have seen how everybody was hounded for approving six cents per units to projects like Hubco in the past, now these people are asking for 8 to 10 cents per unit. I don’t want to go to jail for this.”

Thus the basic issue is: whether we want electricity which may be a little expensive, or have no electricity?” The success story of the PPP government in 1994 was that it gave an attractive power policy to attract private sector investment. They also pushed the Hubco project which was snail-pacing since Zia’s time. Hubco became a show piece for Pakistan for pulling in foreign investors. It was the first time that the World Bank invested in the private sector power projects in the world. It was the project with investment from 40 international banks. All this attracted other players and the result is that today these much-maligned IPPs are contributing around 35% of the electricity produced in the country. Imagine what would be life without them. WAPDA and its supporters in the bureaucracy criticised IPPs. Nawaz Sharif and Musharraf government tried to score points by launching a political tirade against IPPs and the PPP. What the opponents of PPP power policy did not realise then and what many do not understand even today is that the government does not have the money to fill in the demand and supply gap. Private sector investment is a must and the times of cheaper energy are gone. The economic losses because of power shortage are much bigger than looking at the financial cost only.  If the government wants to reduce the power tariff burden on the poor domestic consumer and the export oriented industry the subsidy should be direct and transparent and it should not be hidden in the power rates.  Another measure which can bring the power rates down for the end consumer is to control the electricity theft. WAPDA and KESC have over 30 to 40 per cent transmission and distribution losses. In any national distribution system acceptable T&D losses are about 12 to 15%. The rest is all theft. And who is paying for this theft? It’s the consumer who is paying the bills honestly. But action against the electricity thieves requires political will, which is indeed in short supply in Pakistan.

IPP’s representatives who are already investing in the power projects have also highlighted the problem of poor law and order situation. Number of industrial and electricity generation projects is being delayed because of the rising cases of kidnapping and demand for protection money by the criminal elements. The government which spends too much on providing security to its ministers and officials should rather be protecting these investors and their foreign technical staff.

Lastly, we should realise that all the electricity problems are not related to power shortage. The distribution network needs heavy investment across the country. Most of our power supply is through overhead wires which results in more T&D losses and frequent breakdowns. Outages we suffer after every rain are because of the rundown power distribution system. Again, can the cash-strapped government invest millions of dollars required for refurbishing this system?  Unfortunately the answer is plain and simple NO. The government should move on and privatise the electricity supply organisations, but after taking bank guarantees from the buyers for investing in the pre-approved refurbishment and development plan. The KESC experience has gone sour because investment in the infrastructure and power generation was not guaranteed in the sale agreement. The fly-by-night Saudi investors made money by selling their shares and walked away leaving the KESC hot potato in the hand of UAE investor Abraaj and the present government. (ayazbabar@gmail.com)

So what is the story behind this

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